Today, Israel is a regional military, technological and financial power. It has one of the world’s most sophisticated defense industries, one of its most productive technology sectors, a young and growing population, deep domestic savings, and capital markets that have dramatically outperformed in recent years. Yet its financial regulation still reflects an older psychology: protect the local market, avoid concentration of risk, and assume that the country’s role is to maintain stability, rather than project capital and power outward.
That posture is outdated. Israel should not abandon prudence. But it must recognize that financial scale is now a national asset.
The best analogy is Israel’s defense industry.
Israel’s security needs are enormous, but Israel alone could never support a complete, world-class defense ecosystem on the scale required to keep Elbit, Rafael, IAI and hundreds of suppliers globally competitive. So Israel did something smarter. It used its operational experience, battlefield-proven technology, and culture of innovation, to become indispensable to other countries. It co-developed systems with some partners, exported to others, and turned a domestic security necessity into a globally sustainable industry.
The same logic should now be applied to finance.
$1 trillion under management
A little-known fact is that Israel has built an institutional-capital base of sovereign scale. The country’s pension, provident and insurance assets are highly concentrated in five major financial groups: Harel, Migdal, Clal, Menora Mivtachim, and Phoenix. Alongside the next tier of domestic asset managers, this ecosystem manages more than $1 trillion.
Individually, these institutions are meaningful. In aggregate, they are one of the most powerful financial institutions in the globe.
Compare that with the Gulf. Abu Dhabi and Dubai have used sovereign capital to become obligatory stops for global private-equity firms, infrastructure investors, technology companies, IPO candidates, and now AI data-center builders. Singapore has done the same through Temasek and GIC. While Qatar’s politics are deeply controversial, the Qatar Investment Authority has unquestionably translated capital into financial and diplomatic influence.
Israel has no QIA, no Temasek and no Mubadala. But it does have a domestic institutional system of a comparable order of magnitude. The difference is that Israel has not built the regulatory and diplomatic architecture to leverage it.
This is not an argument for politicizing pensions. The capital belongs to Israeli savers, and there should be no political direction in the management of funds.
But the government can and should change the rules so that investments that are both commercially attractive and strategically important become easier. The state should create a framework that nudges these $1 trillion into areas of high fidelity for the country.
The reforms that matter
Three reforms matter most.
First, Israel should rethink both the allowed ratio and the regulatory distinction between local and foreign investment. While it is true that every asset manager has a home bias, the current ratio of 60:40 for the scale of Israel's assets under management versus the size of the Israeli market is not well balanced. A gradual move to 40:60 is most likely both healthy, and, coupled with incentives to invest in certain geographies and certain national priority projects, could yield tremendous outcomes both financially and strategically.
Secondly, Israel must create meaningful incentives for physical buildout. The next generation of AI leadership will not be won by software talent alone. It will require data centers, electricity, cooling, chips, communications infrastructure, robotics capacity and advanced manufacturing. Israel should use tax treatment, permitting priority grid access, credit enhancement and other tools to incentivize physical buildout. If Israel wants to create 500M-2GW of AI compute capacity, Israeli institutions can and should be the gateway for the world’s leading infrastructure funds and technology companies in projects physically located in Israel. This will allow the country to gain both productive capacity and strategic partners.
Thirdly, Israel should define categories of national economic security. Compute, energy, semiconductors, defense production, critical materials, communications infrastructure and advanced manufacturing are not ordinary sectors anymore. They are the backbone of sovereignty. Investments in these categories both locally and in strategic partners should receive enhanced benefits: limited first-loss protection, accelerated depreciation, regulatory fast tracks, or eligibility for institutional risk-capital programs. The purpose is not to subsidize weak companies. It is to make nationally important projects financeable and more lucrative than the ones that do not fall into these categories.
The prize
The strategic prize is not simply higher returns, though properly structured investments should meet that test. The prize is influence.
Countries behave differently towards markets in which their companies have capital at risk. Global private-equity firms behave differently towards countries where their funds raise large commitments. Technology companies behave differently towards places where they build data centers, list shares, hire engineers, and partner with local institutions.
Israel has spent decades trying to attract capital. It now needs to learn how to organize and deploy its own.
Israel should stop regulating itself like a small underdog and start acting like the regional financial power it has become.
In the AI age, economic scale will shape diplomatic power. Israel already has the innovation, the security relevance, and now the well-organized financial stockpile. What it lacks is the up-to-date regulatory imagination to connect them.
The author is General Partner at Deep33.
Published by Globes, Israel business news - en.globes.co.il - on July 7, 2026.
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